By Rohit Sadaka

India Ratings and Research (Ind-Ra) has affirmed NMDC Limited’s Long-Term Issuer Rating at ‘IND AAA’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

Fund-based limits

-

-

-

INR0.5

IND AAA/Stable/IND A1+

Affirmed

Non-fund-based limits

-

-

-

INR24.5

IND AAA/Stable/IND A1+

Affirmed

KEY RATING DRIVERS

Continued Strong Financial Performance: Revenue grew 10% yoy to INR85.1 billion in 9MFY19 (FY18: INR116 billion; FY17: INR88.28 billion) due to a 27% yoy surge in realisation to INR3,792 per metric ton, partially offset by a 13% yoy decline in sales volume to 22.2 million metric ton. Consequently, EBITDAR grew 23.8% yoy to INR48.38 billion in 9MFY19 (FY18: INR58.03 billion; FY17: INR35.9 billion) and EBITDAR margin increased to 56.85% (9MFY18: 50.5%; 9MFY17: 44.8%). EBITDAR per tonne increased by INR649 to INR2,179 in 9MFY19. The surge in realisation was supported by higher demand in the steel industry, as well as supply constraints due a global price increase. NMDC was net cash positive in 9MFY19 and FY18.

 

Sustained Robust Liquidity: At FYE18, NMDC had cash and cash equivalents of INR50.5 billion (FYE17: INR48.75 billion; FYE16: INR110 billion). For FY19, cash is likely to have been around INR45 billion. Although the company utilised INR10 billion to buy back equity, its ability to generate cash remains strong and is reflected in its high operating profitability level of 40%-60% over FY15-FY19(P). The company also has an unutilised sanctioned fund-based facility of INR0.5 billion.

Ind-Ra expects NMDC’s liquidity to have remained robust over FY19 and to continue to be so in FY20, backed by high free cash generation and a comfortably fundable moderate capex plan. However, a significantly high outflow by way of dividends or otherwise leading to a reduction in free cash availability may negatively impact the ratings.

Valid Mining Licences, Albeit Operations May be Impacted:
NMDC, as a public sector undertaking (PSU), is eligible for a preferential treatment under the amended the Mines and Minerals (Development and Regulation) (MMRD) Act, 2015. This will enable the renewal of its existing mining licences that are due to expire in March 2020 and the allotment of planned new mines, under JVs with state PSU miners in Chhattisgarh and Jharkhand. All NMDC’s mines have valid licences and are operating, except the Donimalai mine (capacity: 7 metric tons per annum (mtpa)), where production has been halted since November 2018 due to a dispute with the state government over the payment of a premium levied during the renewal of mines. Any dispute in the renewal of existing mining licences, along with a delay in the resolution of the Donimalai mine dispute, may result in a loss of production capacity of 7mtpa in FY20 and 29mtpa in FY21. However, NMDC has valid mining licences to produce 21mtpa beyond March 2020.

Lower-than-Expected Capex:
NMDC incurred capex of around INR23 billion in FY18 as against the planned INR30 billion due to a delay in obtaining project clearances, leading to a lower-than-expected leverage in FY18. Furthermore, in FY19, NMDC incurred a capex of around INR20 billion. The slowdown in capex is largely due to the company’s inability to attain pre-condition or approvals. Consequently, NMDC did not borrow term loan in FY19 and is unlikely to borrow in FY20, as cash accruals will be sufficient to meet capex requirements. Of the total capex over FY17-FY19, the majority was focused on the 3mmtpa steel plant in Nagarnar (Chhattisgarh; INR18 billion), which is in the advance stage of completion and is likely to commence operations from 3QFY20. Another major capex over FY20-FY21 will be towards the construction of a slurry pipeline and screening plant at mines.

Long Working Capital Cycle:
NMDC’s working capital cycle remained long at 80-100 days over the past three-to-four years, driven largely by a 10% retention of sale proceeds by the monitoring committee for the ore sold form the Karnataka mines (FY11-FY19). Around 35% of NMDC’s revenue is from Karnataka, where all the ore is sold through the e-auction route under the supervision of a monitoring committee. The retention money is towards reclamation and rehabilitation plan (R&R plan) which is reflected under trade receivable. The money would only be refunded once the R&R plan is submitted and approved by a competent authority. NMDC’s R&R plan to the Central Empowered Committee has been approved but not yet released, as the issue is still pending with the Supreme Court of India. NMDC expects the withheld money to be released from 2HFY20.


RATING SENSITIVITIES

Negative: Higher-than-expected debt-led capex and/or deterioration in free cash leading to a significant increase in the net leverage above 1.0x on a sustained basis would be negative for the ratings.

Furthermore, regulatory intervention leading to the non-renewal of the mining lease or the loss of the PSU status would be negative for the ratings.


COMPANY PROFILE

Listed on the BSE Ltd and National Stock Exchange, NMDC is a PSU engaged in the mining of iron ore.

 

FINANCIAL SUMMARY

 

Particulars

FY18

FY17

Net revenue (INR billion)

116.15

88.28

EBITDAR (INR billion)

58.03

35.95

EBITDAR margin (%)

50.0

40.7

EBITDAR interest coverage (x)

156.4

173

Gross adjusted leverage (x)

0.1

-

Source: NMDC, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating/Outlook

18 April 2018

29 December 2016

Issuer rating

Long-term

-

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

Fund-based limits

Long-term/Short-term

INR0.5

IND AAA/Stable/IND A1+

IND AAA/Stable/IND A1+

Provisional IND AAA/Stable/Provisional IND A1+

Non-fund-based limits

Long-term/Short-term

INR24.5

IND AAA/Stable/IND A1+

IND AAA/Stable/IND A1+

IND AAA/Stable/IND A1+


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Rohit Sadaka

    Director
    India Ratings and Research Pvt Ltd Room No. 1201, 12th Floor Om Towers 32, Chowringhee Road Kolkata 700 071
    +91 33 40302503

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121